Correlation Between Vanguard Value and Davis Select

Can any of the company-specific risk be diversified away by investing in both Vanguard Value and Davis Select at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Vanguard Value and Davis Select into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Value Factor and Davis Select International, you can compare the effects of market volatilities on Vanguard Value and Davis Select and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Vanguard Value with a short position of Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Davis Select.

Diversification Opportunities for Vanguard Value and Davis Select

0.77

Correlation Coefficient

Vanguard Value  Davis Select

Poor diversification

The 3 months correlation between Vanguard and Davis is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Factor and Davis Select International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Interna and Vanguard Value is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Vanguard Value Factor are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Interna has no effect on the direction of Vanguard Value i.e., Vanguard Value and Davis Select go up and down completely randomly.

Pair Corralation between Vanguard Value and Davis Select

Given the investment horizon of 90 days Vanguard Value Factor is expected to under-perform the Davis Select. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Value Factor is 1.17 times less risky than Davis Select. The etf trades about -0.21 of its potential returns per unit of risk. The Davis Select International is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,937  in Davis Select International on January 30, 2024 and sell it today you would earn a total of  67.00  from holding Davis Select International or generate 3.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Vanguard Value Factor  vs.  Davis Select International

Vanguard Value Factor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Factor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vanguard Value is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Davis Select Interna

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Select International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Davis Select unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Value and Davis Select

The main advantage of trading using opposite Vanguard Value and Davis Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value position performs unexpectedly, Davis Select can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Davis Select will offset losses from the drop in Davis Select's long position.

The idea behind Vanguard Value Factor and Davis Select International pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.